MANILA, Philippines – The Bureau of Internal Revenue (BIR) will not feel the impact of the reformed sin tax law right away because cigarette companies "overstocked" on their goods before the law's implementation, said Finance Secretary Cesar Purisima.
Purisima said 2013 will not be a good gauge of the effects of higher sin taxes. The BIR should see the effects in 2014.
“They’re playing games with us. They overstocked their inventory more than normal,” he said.
He said tobacco companies want to “discredit” the law. “The initial feedback given to me was they have stock from the old regime. Now it’s March and they will probably be pulling stock from December. Then they will make a campaign saying ‘it’s not working we should change it.’”
“Our point is this is a structural reform and it takes a while. When it takes effect you will see the benefits as we’ve forecasted,” he added.
British American Tobacco (BAT) general manager James Lafferty said the same thing during a press briefing in February. He said the effect of the new sin tax law would not be evident until mid-2013 due to massive production by the majority of tobacco companies before the measure took effect.
“The proof is pretty simple. The fact is that the [manufacturing] prices haven’t gone up in the market [since the implementation of the sin tax law]. There are only two [reasons] as to why the prices haven’t gone up. Number one is that there was widespread pre-production under the old excise rate, and that’s why they don’t have to raise the price, or two the government is swallowing the difference, which I don’t believe,” Lafferty said.
According to him, the practice of producing large volumes before higher taxes is legal. “It’s well known that whenever there’s an excise reform like this, companies pre-manufacture to the old excise rates. There’s all kind of rumors in this market place that multiple months’ volumes have been produced at the old excise rate prior to sin tax law change. The big question is how much was pre-produced? We’re already in two months and why is it not moving?”
Republic Act 10351, which raised the taxes on so-called sin products tobacco and alcohol, was implemented in January with the aim to raise over P33 billion ($800 million) in 2013 alone.
A large percentage of the money will be spent for the government's health care program. - Rappler.com